Top 5 Indian stocks that foreign investors have been buying this year

The trajectory of inflation going ahead in the US will be a key determinant of foreign investors' flows in general towards emerging markets (EMs), including India. Overall foreign portfolio investor (FPI) flows for CY22 can be clearly demarcated into the selling phase of H1CY22 and now resumption of buying in H2CY22, as per domestic brokerage and research firm ICICI Securities.

Top Indian stocks that saw an increase in FPI holding during the first half of the current year (H1CY22) are Cipla, ITC, HAL, UPL and Power Grid, data analysed by ICICI Securities showed. Whereas, Tech Mahindra, HDFC, HDFC Bank, L&T Infotech and Mindtree are among the stocks that witnessed a decrease in FPI holding during the same period.

FPI selling in the first half of 2022 (around $29 bn including primary flows) was largely driven by financials and IT and to a lesser extent by discretionary consumption, oil & gas and cement.

“FPI buying in H2CY22 (till 15th Aug’22) has been driven by domestic economy sectors such as consumer discretionary, financials, industrials, FMCG and telecom. However, sectors driven by global factors such as oil & gas, IT and metals were sold by FPIs,” the brokerage's note stated.

Meanwhile, domestic institutional investor (DII) buying during H1CY22 was $30 bn which included MF buying worth $16.8 bn across sectors with highest flows towards financials, IT, consumer discretionary, auto and oil & gas.

Analysts believe that the hawkish comments by the US Federal Reserve chairman at the Jackson hole symposium is an extension of the quantitative tightening (QT) cycle which began last year (CY21) and resulted in the biggest quantum of FPI outflows from India over a one-year period.

The massive outflow, in anticipation of a 1960s-80s type of extreme QT cycle, was probably an overreaction which is correcting via inflows seen since July 2022. Although not as extreme as originally thought, QT cycle seems to continue, which will result in bouts of volatility from FPIs although the phase of ‘unprecedented relentless selling’ seems to be behind us, as per the brokerage. Using the final FPI flows data from NSDL, which includes primary inflows as well, inflows from FPIs stand at $6.8 bn so far in H2FY22 till 30th August 2022.